An FCA investigation into the London Capital & Finance scandal has been described as defensive in scope and nature as the regulator’s staff will not be compelled to speak to investigators and it will also be able to respond to criticisms before a report is published.
The Financial Conduct Authority revealed details of the investigation which will see Dame Elizabeth Gloster, a justice in the court of appeal, interview bondholders, professional organisations and other interested parties about the scandal, which saw approximately 11,500 retail investors lose £237m from collapsed mini-bond issuer London Capital & Finance.
In a statement today, Dame Gloster said: “Many people have been badly affected by the failure of London Capital & Finance. There is rightly a great deal of interest in what happened at LCF and the role of the FCA.
“I am keen to hear from as many of those affected as possible and am grateful for the information I have already received from bondholders and others.”
‘Dreaded Maxwellisation’
However, Mark Taber, who has been campaigning on behalf of LCF bondholders, argued the investigation appears to be “very defensive” in nature with everything including all information and interview requests having to be made by email. The FCA provided an email address for anyone wishing to send relevant information, noting it would only be accessed by Gloster and her independent, which is currently in the process of being assembled.
In an emailed response to Portfolio Adviser, Taber said: “This could also slow things down. I would have hoped the FCA would be more open and invite relevant staff to contact Dame Gloster to volunteer information. Also, FCA employees not compelled to talk to Dame Gloster.
“I also see the FCA want to be able to respond to any criticism before the report is published – dreaded Maxwellisation.”
Taber described Gloster as very experienced, but also questioned whether she is connected enough with “victims in the real world and not too close to the establishment to rock the boat”.
Scandalous for innocent advisers to pay
Informed Choice managing director Martin Bamford said he hoped the independent investigation would answer important questions around the scope of advice and regulatory protection when things go wrong.
“It would be scandalous for regulated financial advisers to pay LCF victims a penny in compensation, via the Financial Services Compensation Scheme, as such a course of action introduces extreme moral hazard to the UK financial services sector,” he said.
“We simply can’t have a system where investors take no risk or responsibility for their actions, safe in the knowledge they will be compensated by our levies should things go wrong.”
Taber argued “ad hoc compensation” should be considered, similar to the case of the insurer Equitable Life which collapsed in the 1990s and investors were compensated as a result of the government and regulators failures. In that case the taxpayer foot the bill as independent reviews revealed the regulator to be culpable for failing to prevent its collapse.
Bamford added: “I hope the investigation will be conducted swiftly and will result in better consumer protection from a regulatory which can act more quickly to stamp out schemes like this before they cause all of us financial and reputational harm.”
Taber added that the LCF investigation should set the scene for more to come. “Woodford would merit a similar investigation as does the collapse of Lendy.”
